Power Pal

I watched this 7 min video from the McKinsey Quarterly and thought it was pretty good. It focuses on the urbanization that China will undergo over the next decade as hundreds of millions of people flock to urban centers. It also deals with how China should build those urban centers - lots of mega-cities of 10 million+ vs. some mega-cities surrounded by mid-size cities in a hub-and-spoke model vs. proliferation of small townships. Here's the video: The accompanying article on the topic covers the same material in a little more analytic detail.  Beyond the exact format the urbanization will take, what I think is more interesting is the implications that any mass urbanization will have on the economy there.  Here are some areas of concern: Land - with urbanization and development comes urban sprawl and the loss of arable land - which means heightened concerns over food security Energy - the demand for energy and energy resources will more than double (from 60 quadrillion Brit...

I read an article in the WSJ (Merger, Indian Style: Buy a Brand, Leave it Alone) a while back about how Tata Motors was going to buy Jaguar and Land Rover from Ford. The main focus of the story was how Tata was looking to learn from the US companies: Rather than seeking to wring profits out of two luxury automotive brands that frequently have lost money, Tata is looking to learn from them to help launch its own global expansion in autos, using the brands' own management team and a full roster of employees. I thought that was an interesting trend. I later came across an opinion piece by Matthew Slaughter, an associate dean and professor at Tuck, about what the Tata deal tells us about the benefits of foreign direct investment. He pointed out how these multinationals undertake their "insourcing" deals: It is well known that new FDI can come via "greenfield" investments that build new businesses from scratch. Think photo opportunities of business executives and...

I read a few articles about the proposed cap-and-trade system in the U.S. and thought it'd be a good opportunity to read up on the Kyoto Protocol. According to a press release from the United Nations Environment Programme (from Wikipedia): The Kyoto Protocol is an agreement under which industrialized countries will reduce their collective emissions of greenhouse gases by 5.2% compared to the year 1990 (but note that, compared to the emissions levels that would be expected by 2010 without the Protocol, this limitation represents a 29% cut). The goal is to lower overall emissions of six greenhouse gases - carbon dioxide , methane , nitrous oxide , sulfur hexafluoride , hydrofluorocarbons , and perfluorocarbons - averaged over the period of 2008-2012. National limitations range from 8% reductions for the European Union and some others to 7% for the US, 6% for Japan, 0% for Russia, and permitted increases of 8% for Australia and 10% for Iceland. An additional summary from Wikipedia o...

I've read some articles lately about medical tourism and came across one today from BusinessWeek called " Outsourcing the Patients ". It talks about a really interesting trend of health insurers sending their policyholders overseas to get health care because the costs are so much cheaper. And we're not talking about some obscure insurers, the article refers to Blue Cross Blue Shield of South Carolina for its example. These insurers are really concerned about rising health care costs in the U.S. It's what sent WellPoint's stock tumbling almost 30% this past week - an amazing loss in market value - because they had to make "revisions to our prior earnings guidance due to higher than expected medical costs". One of the biggest Blue affiliates with over 250 actuaries underestimating costs definitely spooks the market and speaks to how high costs really are. To put how high costs are in perspective, here's a summary from the BusinessWeek article co...

I read a good article in the opinion section of the WSJ a couple days ago about corruption in the World Bank's dealing with Kenya. It's an interesting follow-up to my previous post about profit-motivated capitalism being better than philanthropy . The WSJ article highlights several recent examples of how money was being misused by both Kenyan officials and the World Bank themselves. It was that corruption that prompted Paul Wolfowitz in 2006 to withhold $260 million in lending to Kenya in an attempt to link future lending with guarentees of changes in Kenya. Wolfowitz was forced out and lending increased dramatically as he left. And of course, corruption did not abate in Kenya. The problem with disbursing funds without appropriate guarentees of change or oversight to ensure those changes are carried out is that it feeds a culture of corruption. And, as I've mentioned before, it's that corruption and lack of rule of law that is holding people back from helping th...

I love reading the editorial page of the WSJ. I came across an article a couple weeks back by William Easterly, an economics professor at NYU, about how Bill Gates' recent push at Davos for what Gates called "creative capitalism" was, although admirable, not really going to help anyone. (It's a 36 min video, so it takes some time to watch). The main point that Gates makes in his speech is that traditional capitalism only benefits those that have money - i.e. those that can participate in the system at all. He was trying to push corporations to to look for innovative ways to incorporate the poorest people of the world into the global economy. He suggested that "recognition" might be one reason a company might want to do that. If companies are recognized for their philantropic works more, that's good PR and free marketing and would motivate them to do more. He used "tiered pricing" as another example for how they might go about it. For ...

I've never been to China, India, or Brazil, so it's really interesting to read how different retailing works there. I had a previous post on the subject about how chaos sells in India . I recently read an article in the McKinsey Quarterly on the subject. A couple interesting highlights: China : The average Chinese person doesn't really distinguish clothing for different occasions or uses. Work, weddings, special events, etc. all generally fall into the same category for them. And they don't view foreign brands as at all superior to domestic brands. That's the average Chinese person of course. The youth in China are much more similar to those in the U.S. They view foreign brands more favorably and are willing to spend more on clothing as their incomes rise. Lesson here is to focus on the youth. India : For Indians, apparently shopping is a family affair. Indians (across all regions, income segments, and age ranges) believe that shopping is a family activity. In fac...

This was certainly an interesting week for the global economy. A low level index trader at a French bank loses $7.2 billion without anyone knowing. The bank unravels it's investments and the international markets tank. The US markets tank. The Fed proactively responds with a 75 basis point drop in the fed rate. The markets rebound a bit (maybe it wasn't a crisis after all?). Then the President announces an economic stimulus package to give the economy a "shot in the arm". Crazy week. Looking back, there were many intertwined, profound issues that were highlighted. Let me comment on each: It's the (Global) Economy, Stupid It still remains to be seen to what extent the $7.2 billion losses at Societe Generale in France caused the decline in the international markets on Monday. But, it appears that it certainly didn't help things. The bank quickly tried to unwind in just 72 hours the unauthorized trades its rogue trader had made over several months. That news did...

The holidays have passed and the madness associated with holiday sales has as well. But what's so common in the United States is actually quite uncommon around the world, particularly in Europe. I read an article in the WSJ last Christmas Eve about how German stores are finally offering items on sale during the holiday season. Up until 2004, that practice was actually illegal! The stores are finally loosening up, extending store hours and offering significant discounts. It's interesting why those laws existed in the first place. The simple answer is that it's a general controlled economy system that has existed in Europe for some time. Trade unions, churches, and small retailers all have traditionally argued that increased flexibility hurts store workers and benefits only the larger retailers. And then a more unusual reason was also included in the article: In Germany, it took years of intense debate to eliminate a Nazi-era law that prohibited haggling and put limits on b...

I read a really interesting article in Knowledge@Wharton about what is called "The Resource Curse". It's an economic paradox in which countries that have substantial natural resource reserves, particularly in petroleum and natural gas, are actually worse off as a result compared to countries that do not have those reserves. The article primarily focuses on African nations that are major oil exporters or where recent oil reserves have been discovered. The cause of the paradox seems to be several fold (these are my conclusions from the article): Over-valued currency leads to decrease in exports - The export of oil greatly inflates the value of the country's currency, causing any other exported item to be uncompetitive in the global marketplace. Agriculture, manufacturing, or most other industries are at a severe disadvantage compared to neighboring countries. This has a substantial impact on the average, every-day African citizen. Single industry economy leads to atr...

An update to my post about Japan Needing More Babies . I read an article in the WSJ (a summary of an LA Times article) a few weeks back about the graying of China and the implications it will have on its economy in the coming decades. Here's an excerpt from the article: While China's population is relatively young, by the middle of the century it is set to become one of the world's grayest societies. Today, less than 8% of China's population is 65 or older. By 2050, that proportion will rise to 24%, compared with Europe's 28% and 21% in the U.S. In sub-Saharan Africa, the proportion of elderly individuals will rise to less than 6% from 3% now. Moreover, at 1.3 billion, China's population is impressive now but will be less so in the future. According to U.N. projections, most of the world's total population increase from 6.5 billion today to 9.2 billion in 2050 will come from sub-Saharan Africa and the Muslim world. India's population is expected to ove...

Just a quick update from an earlier post of mine about Terry Gou and Hon Hai Precision Industry. Saw another article in the WSJ about how the gigantic company I had never heard of is quintupling its investment in Vietnam to $5 billion. First off, WOW! That's a crazy amount of money to be throwing around. Second, Vietnam is heating up!

Read an article in the WSJ this weekend about Terry Gou, the founder of Hon Hai Precision Industry - also known as Foxconn . The company employs 270,000 employees primarily in a campus in Shenzhen outside Hong Kong. The complex has its own fire department, book store, dormitories, hospital, swimming pool, and athletic complex among other things. The manhole covers on the streets read "Foxconn". An excerpt regarding the company's revenues: Hon Hai's revenue has grown more than 50% a year in the past decade to $40.6 billion last year. It is expected to add $14 billion in revenue this year. That is roughly the equivalent of Motorola's adding, within a year, the sales of CBS Corp. This has got to be the biggest company that most people have never heard of. Apparently Terry Gou hasn't taken an interview since 2003 as he believes the lack of media deprives his competitors of information and protects the privacy of his customers, which include Dell, Apple, and Noki...

Read an article in the WSJ about one of the top selling cars in Russia having one of the worst safety crash tests ever. The Chery Amulet completely crumpled in the Russian crash test. The video on YouTube says it all. Scary.

Read an article in the WSJ called " In India, a Retailer Finds Key to Success is Clutter " about how Indian consumers are more comfortable shopping in cramped, cluttered, noisy, often dirty environments instead of more sterile, organized environments that are common with Western retailers. Kishore Biyani has built India's largest retailer, Pantaloon Retail, by attracting Indians that have traditionally been only comfortable shopping in open, public markets. Attracting people to big chain stores carries unique challenges. Biyani talked about three different "types" of Indian consumers: Mr. Biyani divides India's 1.1 billion people into three types of consumers. "India One," as he calls them, are those with good educations, good jobs, and much disposable income. They also are the target audience for many foreign companies seeking to sell their wares here. Mr. Biyani estimates that such customers comprise about 14% of the total population. Where he s...

Read a few articles in the WSJ today about cars and it also reminded me of a show I saw on cable this past weekend. Here they are in no particular order: $3000 car - Nissan and Renault are teaming up to build a $3000 car in India. It should open up the opportunity for many Indians to buy cars that were only previously able to buy motorcycles. It will likely mean more congested roads and more pollution though. Sulfur Fuels in China - China is likely going to delay enforcing more stringent auto-emissions standards because its refineries don't produce enough low-sulfur gasoline. Energy in China - I saw a recent University of California Journalism show ( Frontline: Undermined ) on cable that talked about (among other things) the increasing appetite for automobiles in China and the impact it will have on the environment. Despite that impact, buying behaviors are not effected by "green" messages. The increased cost isn't justified in most people's minds. The segment ...

I read a book review in the Wall Street Journal a week ago that was pretty interesting. I'm going to put it on my reading list as it seems both educational and fun. The book is called The Sushi Economy . The subtitle is "Globalization and the Making of a Modern Delicacy". It's about the rise of the sushi industry worldwide and the many far-flung impacts it has (including the creation of a global supply chain and global demand for tuna).